Related Party Transactions in Results: SEBI’s Rules and the Red Flags to Spot

Most of us read a results release from the top: revenue, EBITDA, profit, done. The money that moves between a listed company and its promoter’s other businesses rarely makes the headline, yet it can quietly decide how much of that profit ever reaches minority shareholders. That’s why related party transactions in results and the filings around them deserve a proper look, especially in a market where so many listed companies sit inside promoter groups.

This guide covers what counts as a related party transaction (RPT), what SEBI’s listing rules require before a company can do one, how the materiality threshold changed in late 2025, and the patterns we’d treat as warning signs. The rule details come from SEBI’s own board memorandum on RPT amendments (September 2025), SEBI’s FAQ on the LODR Regulations and law-firm summaries of the final notification, all linked where we use them. The company examples are made up so the arithmetic stays clean.

What related party transactions in results actually are

A related party transaction is a deal between a company and someone who already has a connection to it: a promoter, a director, a key managerial person, their relatives, or companies they control. Investopedia describes it as an arrangement between parties with a pre-existing connection or shared interest that could influence the deal’s terms. Sales, leases, service agreements and loans are the usual forms.

None of this is illegal. A cement company buying power from a group utility, a carmaker paying a brand royalty to its parent, a bank lending to a group NBFC: these happen every day. The worry is pricing and purpose. When the same family sits on both sides of the table, nobody is negotiating hard for the minority shareholder unless the rules force someone to.

Investopedia’s explainer also points to the extreme case. Enron used related-party deals with special-purpose entities to hide billions of dollars of debt before its 2001 collapse. Indian investors have their own list of governance blow-ups where money flowed to promoter entities long before anyone noticed. The specifics differ, but the pattern rhymes.

What SEBI’s LODR rules require before a company does an RPT

Regulation 23 of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, usually shortened to LODR, sets up three layers of control. Here’s how they work, based on the regulation text reproduced by TaxGuru’s Regulation 23 summary and SEBI’s own documents.

Layer 1: the audit committee approves every RPT first

All related party transactions, and any later material modification to them, need the prior approval of the listed company’s audit committee. Only the members who are independent directors get to approve. So the first gate is meant to be people with no stake in the promoter’s other businesses.

For routine, repetitive deals the audit committee can give an omnibus approval instead of clearing each invoice. That approval has to name the related party, the nature and period of the transaction, the maximum amount and the pricing basis. Where the need can’t be foreseen, the committee can still give omnibus approval, but only for transactions of up to ₹1 crore each. The committee must also review the deals done under each omnibus approval at least every quarter.

Layer 2: shareholders vote on material RPTs, and related parties can’t vote yes

If a transaction is material (we’ll get to the threshold next), it also needs prior approval from shareholders through a resolution. The key protection is the voting rule. Regulation 23(4) says no related party shall vote to approve such a resolution, whether or not that entity is a party to the particular transaction. SEBI’s FAQ confirms that this is a blanket bar on related parties voting in favour, not just a bar on the party directly involved.

In plain terms, the promoter group can’t use its own stake to push a promoter deal through. The decision moves to the public shareholders, which in practice usually means institutional investors and proxy advisers.

The promoter group can’t vote its own deal through. Once an RPT is material, the minority decides, and that’s the whole point of the rule.

Shareholders can also give omnibus approval for material RPTs. SEBI’s September 2025 board memorandum says an omnibus approval given at an AGM stays valid until the next AGM, for no more than fifteen months, while one given at any other general meeting is valid for one year. The final amendment moved this into Regulation 23(4) itself, as Vinod Kothari Consultants’ note on the notified amendments explains.

Layer 3: disclosure to the stock exchanges every half year

The third layer is sunlight. SEBI’s board memorandum notes that Regulation 23(9) requires listed companies to file disclosures of their RPTs with the stock exchanges in the format SEBI specifies, on a half-yearly basis. This is the filing worth pulling up alongside the September-quarter and March-quarter results, because the results release itself rarely lists who the company paid.

The materiality threshold after the 2025 amendment

This is where the rules changed recently. Until December 2025, an RPT was material if it exceeded ₹1,000 crore or 10% of the company’s annual consolidated turnover, whichever was lower, counting all transactions with that party in the financial year. SEBI’s board memorandum lays out that old test and the complaint from companies that a flat ₹1,000 crore cap was one-size-fits-all, treating every listed company alike regardless of its turnover and scale.

SEBI notified the LODR (Fifth Amendment) Regulations, 2025 on November 18, 2025, according to the Mondaq-published legal newsletter summarising the notification. The RPT changes took effect on the 30th day after gazette publication on November 19, 2025, which works out to December 19, 2025. The new test sits in a new Schedule XII and scales with turnover:

Turnover here means annual consolidated turnover as per the last audited financial statements. That clarification was added after public comments, according to SEBI’s memorandum. The memorandum also gives SEBI’s reasoning for the ₹5,000 crore ceiling: easing the burden on big companies while keeping an upper limit to protect minority shareholders.

Worked examples: where the line falls

Let’s run five hypothetical companies through both the old and the new test. The ₹30,000 crore, ₹50,000 crore and ₹1,50,000 crore cases match the illustrations in LIC’s published materiality annexure, which reproduces the Schedule XII examples.

Two things jump out. Smaller companies, up to ₹10,000 crore of turnover, see no change at all, since 10% of their turnover was already below ₹1,000 crore. And for the largest companies the bar rose up to five times. A little algebra shows where the ceiling kicks in: ₹3,000 crore plus 2.5% of the excess reaches ₹5,000 crore when the excess is ₹80,000 crore, so any company with turnover above ₹1,20,000 crore simply faces the ₹5,000 crore cap.

What does that mean for us as readers of results? Fewer large-company RPTs will now come to a shareholder vote. More of them will be cleared only by the audit committee and then show up after the fact in the half-yearly disclosure. So that disclosure, and the quality of the independent directors approving these deals, matters more than it did before.

For the biggest companies the shareholder-vote threshold went from ₹1,000 crore to as much as ₹5,000 crore. Fewer deals reach a vote, so the half-yearly disclosure carries more weight.

A worked example of aggregation

Take a hypothetical listed packaging company, call it Company X, with consolidated turnover of ₹12,000 crore in its last audited year. Its threshold is 10% of that, or ₹1,200 crore. It buys paperboard from a mill owned by the promoter family.

• In the first half of the year it buys ₹700 crore of paperboard from the mill.
• It plans another ₹600 crore in the second half.
• The two together come to ₹1,300 crore, which is above ₹1,200 crore.

Because materiality counts transactions individually or taken together with previous transactions during the financial year, Company X can’t treat each half as a separate, smaller deal. It needs prior shareholder approval for the arrangement, and the promoter family’s shares can’t be voted in favour. Under the old rules the bar for Company X would have been ₹1,000 crore, so just ₹300 crore of second-half purchases on top of the first ₹700 crore would have hit that line, and anything beyond it would have crossed it.

RPTs done through subsidiaries

Promoter deals don’t always run through the listed parent. They often sit in an unlisted subsidiary, where the parent’s shareholders have less visibility. SEBI’s memorandum used a sharp example to show the gap in the old rules: a listed company with ₹30,000 crore of consolidated turnover, a subsidiary with ₹28,000 crore of standalone turnover, and a ₹2,600 crore RPT by the subsidiary. Under the proposed new threshold of ₹2,500 crore that deal would need shareholder approval, yet it stayed below 10% of the subsidiary’s turnover (₹2,800 crore), so it wouldn’t have needed the parent’s audit committee approval.

The amendment closed that gap. Per the Mondaq newsletter, an RPT above ₹1 crore where the subsidiary is a party but the listed company isn’t now needs prior approval from the listed company’s audit committee if it exceeds the lower of 10% of the subsidiary’s standalone turnover or the listed company’s own materiality threshold. In SEBI’s example that’s the lower of ₹2,800 crore and ₹2,500 crore, so ₹2,500 crore, and the ₹2,600 crore deal now goes to the parent’s audit committee.

For subsidiaries without a year of audited accounts, the measure is 10% of paid-up share capital plus securities premium (taken as of a date no more than three months before the approval), again capped at the parent’s materiality threshold. Vinod Kothari’s note points out that SEBI dropped an earlier net-worth-based proposal that would have needed a chartered accountant’s certificate.

Where to find RPT data around results

The quarterly results release is usually the wrong place to look. Here’s where we go instead:

1. The half-yearly RPT disclosure filed with the stock exchanges under Regulation 23(9), in a format SEBI specifies. Compare it with the previous half-year’s filing.
2. Notices for general meetings and postal ballots. Every material RPT needs a resolution, and the notice carries an explanatory statement on the deal.
3. The annual report, which has a related party note in the financial statements and the company’s policy on RPTs.
4. Voting results published after a meeting, which show the votes cast for and against each RPT resolution.

If you’re still building the habit of reading filings, our guides to how to analyse quarterly results of a company and how to read a company’s balance sheet cover the basics. RPTs then become one more layer you check.

Red flags to spot in related party transactions

An RPT on its own tells you little. What matters is the pattern over several half-years. These are the signals we’d dig into:

• RPTs growing faster than the business. If purchases from promoter entities double while revenue grows modestly, ask why the group supplier is winning share of wallet.
• Money going out as loans, advances or deposits to promoter-linked entities rather than as payment for goods. Loans are much harder to justify on business grounds than a supply contract.
• Receivables piling up from related parties. Sales booked to a group company that pays slowly can flatter revenue while cash stays stuck. Pair this with the cash flow check in our piece on free cash flow.
• Royalty and brand fees paid to a promoter entity that rise faster than profit, or that start suddenly without a clear change in what the company gets.
• Frequent material modifications to contracts already approved. A deal that keeps getting resized or repriced needs a closer read each time.
• One-off sales or asset transfers to related parties near the end of a quarter, especially if they show up as gains. Our guide to exceptional items in quarterly results explains how one-offs distort reported profit.
• A heavy vote against an RPT resolution, even when it passes. Since related parties can’t vote in favour, a big ‘against’ tally means a chunk of the public shareholders weren’t comfortable.
• Vague explanatory statements. If the meeting notice doesn’t explain why a related party is the right supplier or how the price was benchmarked, treat the gap as information.

None of these proves wrongdoing. Plenty of group structures make commercial sense, and some group suppliers really are the cheapest option. But each one is a question the management should be able to answer clearly on the earnings call.

A quick routine for the next results season

When the September-quarter and March-quarter numbers land, we’d add three steps to the usual results read. Pull the latest half-yearly RPT filing and compare totals by counterparty with the previous one. Check whether any RPT is approaching the company’s Schedule XII threshold, using the last audited consolidated turnover. And scan the year’s meeting notices for RPT resolutions and how they were voted. It takes twenty minutes, and it tells you more about how a promoter treats minority shareholders than any management commentary will.

Disclaimer: This article is for information and education only and is not investment advice or a recommendation to buy or sell any security. Regulatory details are summarised from SEBI’s September 2025 board memorandum on RPT amendments, SEBI’s LODR FAQ, the Regulation 23 text as reproduced by TaxGuru, and summaries of the LODR (Fifth Amendment) Regulations, 2025 by Mondaq, Vinod Kothari Consultants and LIC, all linked above. Company X and the turnover figures in the worked examples are hypothetical example data, not real companies. Regulations change, so check the current SEBI text before relying on any threshold, and consult a SEBI-registered investment adviser before making investment decisions.